Onboard Retail LSG Sky Chefs – Catering And

LETTER FROM THE EXECUTIVE BOARD AN INDUSTRY-LEADING NETWORK THE LSG GROUP - POSITIONING04 A GLANCE AT THE OPERATIONS 30 MARKET ENVIRONMENT06 CULINARY EXCELLENCE 32 PRODUCT PORTFOLIO08 ENVIRONMENTAL MANAGEMENT 34 STRATEGIC TRANSFORMATION10 PROVEN EXCELLENCE 38 COURSE OF BUSINESS18 OUTLOOK 40 FINANCIAL PERFORMANCE20 CONSOLIDATED INCOME STATEMENT 42 WORLDWIDE PRESENCE24 44KEY FIGURES 25 45 We look forward LETTER FROM THE EXECUTIVE BOARD to exploring with Dear reader, Once again, we gratefully look back at another year of growth Significant steps have been taken in the transformation of the for our industry. Despite looming turbulence over the world‘s LSG Group. Today, we are able to offer a complete portfolio of you. economy, developments in our key areas of activities – air and products and services for a variety of industries. In the backend, rail travel, as well as convenience retail – were positive around we are changing our operational landscape to become even more the globe. This has certainly laid a solid foundation for the flexible through a market-oriented mix of production modules continued good performance achieved by our company. and tailored logistics. And, most importantly, the processes throughout our value chain are progressively growing in The relative stability of our environment has allowed us to focus consistency, leading to higher efficiency. on the improvement of our processes in terms of standardization, sharing of best practices and learning from each other. Thus, Moving forward, we will concentrate on taking advantage of in addition to a satisfying financial result, we have also attained the multiple opportunities offered by digitalization in creating a remarkable operational standard underlined by quality and new products and applications, facilitating our workflows and sustainability. interfaces and working together more seamlessly. This will be beneficial for our customers, employees and partners alike. Concurrently, a few 2018 milestones are evidence that we are constantly eager to successfully explore “the new,” widen our “Connecting Experts. Creating Experiences,” will continue to horizon and take our company to yet another level. We took be our claim for the foreseeable future. And in the spirit of our culinary expertise beyond the sky and into space with the those words, we would like to thank our employees in almost development of the “bonus food” for the commander and the 60 countries around the globe for their day-to-day commitment crew of the International Space Station’s “Horizons” mission. and enabling us to fulfill this promise while staying at the We positioned our onboard-retail team as the leading experts in forefront of our industry. the market by winning many new customers and successfully applying their know-how in working with five-star airlines. Our sincere thanks also go to our customers and partners And last, but not least, a high customer retention rate in classic for their trust in us throughout the years. We would like to airline catering, as well as a number of recognitions are further encourage you to share any feedback that may help us to Jochen Müller Erdmann Rauer Dr. Kristin Neumann proof of our professionalism and dedication to engaging in further improve and excel. Chief Operating Officer Chief Executive Officer Chief Financial Officer long-term partnerships. In line with the dynamics of the marketplace, the LSG Group Today, the LSG Group’s brand portfolio delivers on three central 06 has significantly widened its product and service portfolio over objectives: providing clarity, leveraging synergies and building 07 the past decade in order to cater to the rising expectations of brand strength for the benefit of the company, its employees, consumers for holistic experiences. Serving this purpose, the customers and consumers. specialized teams from the LSG Group expert brands – LSG Sky Chefs, SPIRIANT, Retail inMotion and Evertaste – work hand- Without its own product line, the LSG Group supports the in-hand. Their different perspectives complement each other development of all business segments by acting as an integrator perfectly to develop tailor-made concepts that enhance the and pooling the competencies of its expert brands. It pushes wellbeing of both travelers and convenience-food consumers. sales leads to these brands and pulls service and product ANNUAL REVIEW 2018 requests from them to create a combined customer offering While LSG Sky Chefs draws on more than 75 years of experience whenever needed. This message is summarized in the LSG in airline catering, SPIRIANT brings creativity and expertise in Group‘s tagline: the design and procurement of tableware, comfort items and LSG GROUP amenity kits to the table. The need of customers and consumers Connecting Experts. Creating Experiences. for comprehensive onboard offerings is fulfilled by Retail inMotion. For its part, Evertaste offers a rich variety of shelf- stable frozen, chilled and ambient packaged products. The LSG Group: MARKET ENVIRONMENT People’s desire for mobility is facilitated Moreover, the airline landscape has changed significantly since Inflight-service providers are consequently challenged to acquire smaller households, people are more prone to shop ready-to-eat by digital opportunities the emergence of low-cost airlines, which have blossomed around and apply new skills, foster innovation and broaden their product products in higher frequency. In our multi-generational society, the world. Budget carriers continue to push global air traffic to and service portfolio. To sum it up, over the past decade they the growing late-lifers value the convenience of online shopping Seemingly unlimited possibilities to manage yourself and connect new record highs, flying more than 30 percent of the global total have had to evolve from a pure business-to-business supplier and nearby shops that also offer possibilities to socialize and with others at any given point in time, in conjunction with as of 2018. They also began to fly long-haul routes just a few to a consumer-oriented provider of holistic creative concepts relax. Last, but perhaps most importantly, our hyper-connectivity affordable prices, have significantly boosted mobility around years ago. Today, there are some 20 of them offering this service and products ranging from simple snacks to fine dining and promotes both click-and-collect and home delivery. the globe. Companies like the LSG Group, have and will again at significantly lower cost than the network airlines. traveling experiences. This has demanded a true transformation rethink their business models in order to satisfy the heightened of their business model, which also requires holistic digital and constantly evolving expectations of consumers. In their fight for market share, airlines – network and low-cost 08 solutions and end-to-end IT processes. alike – will have to focus on building and strengthening the 09 European train operators put stronger This effort is being rewarded by ongoing growth in all areas travel experience for passengers. More than ever, flyers want emphasis on onboard services covered by the LSG Group – air and rail travel, as well as convenience and choice and, depending on the class they convenience retail – and the opportunities it creates for both book, luxury and culinary creations. At the same time, airlines’ Convenience retailers benefit Train rides have become an attractive option over flying for classic and brand-new customer concepts. budgets for onboard services remain tight and are increasingly from worldwide megatrends travelers in Europe since the first step toward the liberalization traded against their goal to grow their ancillary revenue. of the market was made in 2010. Since then, new train operators Convenience retailers (primarily convenience stores, coffee shops have emerged, primarily in Western and Southern European Low-cost carriers have historically focused on generating ancillary ANNUAL REVIEW 2018 and bars) are the second-largest LSG Group customer segment. countries, and legacy ones have extended their offers. This has Airline services are adapting revenue as a means to finance their business models. In 2018, resulted in an increased interconnection among the networks of to changes in demand the ancillary revenues of the entire airline industry were estimated The global convenience-retail market is expected to keep growing airlines and train operators, which has also facilitated seamless at 93 billion USD. That is more than four times higher than in 2010, at an average rate of 3.5 to 4 percent annually. Currently, the travelling for passengers. LSG GROUP With a share of roughly 85 percent of total revenues, airlines which is proof that good merchandisers are selling products desired biggest markets are in Europe (dominated by coffee and bar represent by far the biggest customer segment of the LSG Group. by a vast majority of customers. The offering goes beyond food businesses) and Asia-Pacific (driven by grocery retailer sales). Within this competitive environment, train operators are building and beverages to include boutique items, virtual products and The market has three key characteristics: from a provider on onboard service as one of several differentiating factors In 2018, the world’s airlines carried a record 4.3 billion passengers, inflight-entertainment options. perspective, it is highly fragmented and includes global, regional like flexible ticket changes, digital platforms, convenient slots, an increase of 6 percent over the

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